Borrowing made easy

Greg Miller, a mortgage professional at SmartCap Inc., says the 15-year repayment period for the Home Buyers’ Plan is quite generous. Photo courtesy of Greg Miller

First-time Home Buyers’ Plan offers a path to ownership

A house can be a great investment, but saving enough for a down payment can be difficult. The Home Buyers’ Plan (HBP), offered by the Government of Canada, is a program that aids the purchase of a first home by allowing part of a registered retirement savings plan (RRSP) to be withdrawn as a tax-free down payment in cash.

“This is about the only program that is available now through the federal government,” said David P. Brown, president of CREB®.

How it works

“It allows any first-time home buyer to access up to $25,000 from their RRSPs,” said Greg Miller, a mortgage professional at Invis – SmartCap Inc. “If it’s a couple, each person can access $25,000, so you could get up to $50,000 out of it.”

Eligibility

“The first thing is to see whether you qualify … it’s actually a fairly easy process,” said Brown, who added the full eligibility requirements can be found on the Canada Revenue Agency’s (CRA) website at www.cra-arc.gc.ca or the Canada Mortgage and Housing Corporation’s (CMHC) website at www.cmhc-schl.gc.ca.

“You can’t have bought a home or have a home under your name for a minimum of four years.”

The repayment period is set at 15 years, so it’s pretty generous. If you borrow $25,000, divide that by 15 years and that’s what your annual repayment will be.

Once eligibility requirements are fulfilled, the Home Buyers’ Plan (HBP) Request to Withdraw Funds from an RRSP form needs to be completed. The financial institution holding the home buyers’ RRSP funds will process it and the funds will then be made available.

“It’s generally two to three days, but it all depends on the financial institution,” said Brown. “I’ve seen it take as much as a week or two weeks as well.”

From that point, you have 30 days from the signing date of the RRSP withdrawal to use the money.

Repayment

“The repayment period is set at 15 years, so it’s pretty generous,” said Miller. “If you borrow $25,000, divide that by 15 years and that’s what your annual repayment will be.”

The government gives two calendar years to start paying back the withdrawn money. In cases where it is not repaid in 15 years or the annual payment is not met, the amount is considered taxable income, says Miller.

“If you’re paying it over 15 years but you pay a large lump sum in year five, then [the government] will adjust the remaining 10 years accordingly,” he said.